The Inflation Reduction Act’s tax credit transferability provision is reshaping the landscape for clean energy financing, enabling developers to secure funding more swiftly. A panel at the American Council on Renewable Energy’s Finance Forum highlighted these developments, with experts pointing out the simplification of transaction closures and the expansion of market participants.
Gaurav Raniwala, global renewable energy leader at GE Vernova, noted the streamlined process, stating, “The closing of transactions has become so much easier. You don’t have to line up two different structures simultaneously.” This shift is broadening market participation, allowing new players to enter the clean energy sector.
A report from Crux, a finance technology firm, underscores this trend. Lenders are increasingly financing less established technologies such as carbon capture, supported by a robust market for transferable tax credits.
The Evolution of Tax Equity Structures
Raniwala explained that financing had traditionally depended on the tax equity market, which was limited in capacity. “If you really want to have a dominant energy industry with an abundance of supply,” he said, “we need all sources of energy out there.” Transferability has expanded the market beyond traditional tax equity, welcoming a diverse range of participants.
Crux’s analysis indicates that tax equity structures are evolving into hybrid models, known as t-flips. These structures involve the sale of a portion of tax credits in the transfer market. T-flips accounted for about 60% of the tax equity committed in 2024, with expectations for this share to grow.
Panelist Meghan Schultz, executive vice president and CFO at Invenergy, highlighted the market’s growth. “Historically, the tax equity market was about a $20 billion a year market, dominated by a few institutions,” she said. “With the transferability market, the size more than doubled.”
Flexibility and Customization in Transactions
Raniwala emphasized the customization now possible in transactions based on credit profiles. Developers can opt for traditional tax equity structures while also transferring credits or borrowing against them from banks.
Despite these advancements, the future of transferability is uncertain. A budget bill passed by the House threatens to restrict or eliminate transferability for IRA credits, posing a challenge for investors in clean energy projects.
Crux’s report notes that the Senate must pass its own version of the budget, with potential changes looming. This uncertainty could lead to higher costs of capital and more limited capital availability for developers.
Optimism Amid Uncertainty
Despite potential threats, Crux remains optimistic about the U.S. clean energy economy, citing nearly $340 billion in new investments last year. The speed of transactions enabled by transferability is a key driver of new projects.
Schultz pointed out that the tax credit trade accelerates financing closures, allowing projects to reach the market faster. “It’s facilitated speed to market for projects,” she said, noting the reduced cost of debt and increased flexibility in lending against expected credit transfers.
David Haug, CEO of Bildmore Clean Energy, highlighted the strategic advantages of credit transferability. Developers can choose between long-term offtake contracts or other revenue strategies, even without pre-sold tax credit agreements. “We’re betting that the tax credit market is strong,” he said, “and we’re also betting that the merchant power market is strong.”
Note: This article is inspired by content from https://www.utilitydive.com/news/transferability-ira-clean-energy-tax-credits-project-finance-congress-trump/750046/. It has been rephrased for originality. Images are credited to the original source.